4
$\begingroup$

I am working with EU-KLEMS data, and I am using TFP growth as a proxy for technological change. However, there are 2 variables for TFP - TFP based on Gross Output and TFP based on Value Added.

I understand that Value added in this case might be Gross Output-intermediate consumption, but I am not sure whether this is indeed the case, as there is no such explanation in the EU-KLEMS dataset. The two TFP measures move in a similar fashion across industries, but there are indeed some differences - for example, the VA TFP average increases at a much slower rate than the GO TFP.

I would be eternally grateful if some clarification could be provided on these two measures.

$\endgroup$
2
$\begingroup$

Your assumption is correct. Value added is Gross Output-intermediate consumption(inputs).

value-added approach is a simple measure that ignores the difficulties of dealing with inter-industry and intra-industry flows of goods and services. Intermediate inputs are simply excluded here.

The value-added approach provides a simple link of industry-level MFP and sectoral or aggregate MFP growth.

For gross output-based estimates of MFP growth they acknowledge and allow for intermediate inputs as a source of industry growth. In this method they provide a more complete picture of the production process.

If you need more information this manual can help: https://www.pc.gov.au/research/supporting/comparison-gross-output-value-added-methods/cgovam.pdf

| improve this answer | |
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.